Q2 2022 WeWork Inc Earnings Call

August 4, 2022

It will be a question and answer session.

Ask a question over the phone you will need to press star followed by the number one on your telephone keypad.

To reach an operator at any time, please press star zero.

I would now like to turn the call over to Kevin Berry Senior Vice President Investor Relations. Please go ahead.

Thank you Julian and good morning, and welcome everyone to our second quarter 2022 earnings call with me. This morning is sandy with Rami, our chairman and CEO and Andre Fernandez, our Chief Financial Officer.

During today's presentation, we will refer to our earnings release and supplemental presentation, which have been filed with the SEC and can be accessed at investors that we work dot com.

Good morning, and welcome to Wee works Q2, 2022 earnings call.

Today's presentation includes forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. We will also discuss certain non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question over the phone you will need to press star followed by the number one on your telephone keypad.

To reach an operator at any time, please press star zero.

Additional disclosures regarding these non-GAAP measures, including a GAAP to non-GAAP reconciliation are included in our earnings press release and supplemental presentation and will also be included in our quarterly report.

I would now like to turn the call over to Kevin Berry Senior Vice President Investor Relations. Please go ahead.

Thank you Julian and good morning, and welcome everyone to our second quarter 2022 earnings call.

With that it's my pleasure to introduce Cindy.

Thanks, Kevin before we get to the results I'd like to welcome. Some key members of the team first as Kevin Berry, who will lead Investor relations going forward I've had the pleasure of working with Kevin in the past and I know he will be a great partner to the investor and analyst community.

To me. This morning is Andy with Rami, our chairman and CEO and Andre Fernandez, our Chief Financial Officer.

During today's presentation will refer to our earnings release, and supplemental presentation, which have been filed with the SEC and can be accessed at investors that we work dotcom.

Today's presentation includes forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially.

I also wanted to formally introduce on refinances, our chief Financial Officer.

Since me he has hit the ground running and has brought a fresh and valuable perspective.

Also discuss certain non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance additional disclosures regarding these non-GAAP measures, including a GAAP to non-GAAP reconciliation are included in our earnings press release and supplemental presentation will also be included in our quarterly report.

We have a great team here and I want to welcome Kevin and Andre Firstly earnings call.

Now onto our results what I'm pleased to report our second quarter reflects continued positive momentum across the business.

With that it's my pleasure to introduce study.

Revenue in the second quarter, using our budgeted foreign exchange rates was $841 million above our guidance of $800 million to $825 million at.

Thanks, Kevin before we get to the results I'd like to welcome some key members of the team.

First as Kevin Berry will lead Investor relations going forward I've had the pleasure of working with Kevin in the past and I know what he will be a great partner to the investor and analyst community.

At actual foreign exchange rates revenue was $815 million, an increase of 7% quarter over quarter and 37% year over year.

I also wanted to formally introduce Andre Fernandez, our Chief Financial Officer.

The system wide revenue was $938 million, an increase of 7% quarter over quarter and 41% year over year.

Since may he has hit the ground running and has brought a fresh and valuable perspective.

Adjusted EBITDA was negative $134 million in the second quarter of $78 million improvement from the first quarter and a $315 million improvement relative to Q2, 2021, and within our guidance of negative $1 $25 million to $175 million.

Have a great team here and I want to welcome Kevin and Andre Firstly earnings call.

Now onto our results what I'm pleased to report our second quarter reflects continued positive momentum across the business.

Revenue in the second quarter, using our budgeted foreign exchange rates was $841 million above our guidance of $800 million to $825 million.

Our results continued to demonstrate the durability of our operating model and the versatility of our product.

<unk> ecosystem of flexible offerings that are designed to be symbiotic. We've continued to see companies lean towards wireless products to continually adapt to their workplace acquired.

At actual foreign exchange rates revenue was $815 million, an increase of 7% quarter over quarter and 37% year over year.

The system wide revenue was $938 million, an increase of 7% quarter over quarter and 41% year over year.

An interesting analogy is between retail and e-commerce in the early two thousands and what is happening today with the transformational shift in commercial office and flex.

Adjusted EBITDA was negative $134 million in the second quarter of $78 million improvement from the first quarter and a $315 million improvement relative to Q2, 2021 and within our guidance of negative $1 25 to $1 75 billion.

In 2000 and e-commerce represented 1% of retail sales in the U S and grew to 21% in 2020.

Today, our footprint represents approximately half a percent of the commercial office space in the U S. However, our sales in Q2 were equivalent to 9% of traditional leasing.

Our results continued to demonstrate the durability of our operating model and the versatility of our product.

In the pre pandemic World Flex was considered part of an office strategy today much like E Mail E Commerce Flex represented one channel of distribution.

<unk> ecosystem of flexible offerings that are designed to be symbiotic, we continue to see companies lean towards <unk> products to continually adapt to their workplace acquire.

In the same way that brick and mortar was disrupted by the speed and convenience of E Commerce flexes, capturing office space demand with direct to consumer solutions.

An interesting analogy is between retail and e-commerce in the early two thousands and what is happening today with the transformational shift in commercial office and flex.

Approximately 69% of new membership and membership sales this quarter took occupancy within one month and eight 6% took occupancy within two months, which is a little faster than in previous quarters.

In 2000 and e-commerce represented 1% of retail sales in the U S and grew to 21% in 2020.

Do they ask footprint represents approximately half a percent of the commercial office space in the U S. However, our sales in Q2 were equivalent to 9% of traditional lease.

This trend continues to underscore the value proposition of our business and what gives us confidence as the global economic landscape continues to evolve.

In the pre pandemic World Flex was considered part of an office strategy today much like E Mail E. Commerce Flex represents just one channel of distribution.

And over the last two years at the speed convenience and flexibility.

Other companies look for and rely on during times of uncertainty.

In the same way that brick and mortar was disrupted by the speed and convenience of E Commerce, Lexus capturing office space demand with direct to consumer solutions.

As the World has adjusted to the global power plant dynamic, we have been steadily selling desk and growing member base for well over a year.

Because companies have needed two way to quickly adapt to a new and unknown environment.

Approximately 69% of new membership and membership sales this quarter took occupancy within one month and 86% occupancy within two months, which is a little faster than in previous quarters.

Now in the face of inflation and recessionary pressures not only does that need still exists, but on top of that companies need distribution that can help reduce costs in future proof workplace strategies.

This trend continues to underscore the value proposition of our business and what gives us confidence at the global economic landscape continues to evolve.

We have seen that various economic disruptive impact every industry differently, but ultimately the outcome is an increased demand for flexibility as employers seek increased collaboration and connectivity.

We learned over the last two years at the speed convenience and flexibility.

Is what companies look for and rely on during times of uncertainty.

A quick example can be illustrated through a multi pronged deals we executed in Q2 with a leading cloud system security platform having.

As the world as adjusted due to the global band plan dynamic, we have been steadily selling desk and growing base.

Well over a year.

Having grown their employee base III fortinet year, while expanding that business globally. The company's priority was mitigating risk while also meeting the needs of their rapidly growing workforce.

Because companies have needed two way to quickly adapt to a new and unknown environment.

By leveraging <unk> analysis and utilization reports, we developed a dynamic solution that blends dedicated spaces across six locations in the U S and Europe with 1500, all access passes.

We are seeing that various economic disruptors impact every industry differently, but.

Similarly, the outcome is an increased demand for flexibility as employers seek increased collaboration and connectivity.

The result is a cost effective approach that supports the company's productivity culture and connectivity across the markets.

Across our seed products, the speed and scale at which we're able to tailor offerings to the diverse needs of business today illustrates flexes position as a separate channel of distribution and the office industry.

A good example can be illustrated through a multi pronged deals we executed in Q2 with a leading cloud system security platform.

<unk> grown their employee base III fortinet year, while expanding that business globally. The company's priority was mitigating risk while also meeting the needs of their rapidly growing workforce.

With that I'll now turn to our operating results.

Space as a service our core product the second quarter continued the positive momentum from the first quarter. We ended the quarter with 917000 workstations across 777 locations and 658000 physical memberships above Q1 2000.

By leveraging <unk> analysis and utilization reports, we developed a dynamic solution that blends dedicated spaces across six locations in the U S and Europe with 1500, all access passes.

The result is a cost effective approach and supports the company's productivity culture and connectivity across the markets.

2000, and the highest to date.

As far exceeds pre pandemic levels of membership.

System wide new debt sales were 93000 and renewals for 111000 for a total of 205000 or $12 3 million square feet. One more time I want to iterate, it's $12 3 million square feet.

Across our three products, the speed and scale at which we're able to tailor offerings to the diverse needs of business today illustrates flexes position as a separate channel of distribution and the office industry.

With that I'll now turn to our operating results.

Our consolidated operations accounted for 749000 workstations across 641 locations and 528000 physical memberships as a as of quarter end up 5% quarter over quarter, and 37% year over year occupancy climbed to 70%.

72% when including committed memberships.

2000, and the highest to date.

Consolidated new desk sales was 73000 and renewals with 87000 for a total of 160000 or $9 6 million square feet.

As far exceeds pre pandemic levels of membership.

System wide, new desk sales were 93000 and renewals for 111000.

At the market level, we look Q2 2022 gross sales in Manhattan are equivalent to 18% of the traditional market.

For a total of 205000 or $12 3 million square feet. One more time I want to iterate is $12 3 million square feet.

For office leasing on a square foot basis.

Our consolidated operations accounted for 749000 workstations across 641 locations and 528000 physical memberships as eight as of quarter end up 5% quarter over quarter, and 37% year over year occupancy climbed to 70% and seven.

<unk> portfolio of 5 million square feet accounts for approximately 1% of total office stock.

We looked activity represented 20% of Boston leasing, 15% of Miami as leasing and 9% of the leasing in San Francisco, despite representing 2% or less of the total office stock in each of the three markets.

82% when including committed memberships.

Consolidated new desk sales was 73000 and renewals with 87000 for a total of 160000 or.

Internationally, we works gross sales equated a 34% of London's traditional office leasing.

$9 6 million square feet.

London is a market that is leading the shift to flex, 45% of Dublin's leasing, 13% of Paris leasing and 6% of Berlin's leasing despite representing approximately 1% or less of total office stock in each market.

At the market level, we work.

Q2, 2022 gross sales in Manhattan are equivalent to 18% of the traditional market.

For office leasing on a square foot basis.

<unk> portfolio of 5 million square feet accounts for approximately 1% of total office stock.

The average commitment.

For our small to medium businesses was 14 months and the average commitment for our enterprise clients was 25.

We looked activity represented 20% of Boston leasing, 15% of Miami's leasing and 9% of the leasing in San Francisco, despite representing 2% or less of the total office stock in each of the three markets.

Yeah.

We work reported average revenue per physical member or ARPA of 41.

ARPA using the budgets foreign exchange rates was 497, an increase of 3% quarter over quarter or near our projection of 500 by year end.

Internationally, we will see gross sales equated a 34% of London traditional office leasing lung.

To provide some color on where we are pushing pricing in markets, where we have over 70% occupancy we generally focus on rate and those where we are below 70% occupancy, we generally focus on growing occupancy and <unk>.

London is a market that is leading the shift to flex, 45% of Dublin leasing, 13% of Paris leasing and 6% of Berlin's leasing despite representing approximately 1% or less of total office stock in each market.

Our international region, where occupancy reached 80% this quarter pricing for the contracts signed in the quarter was approximately 4% higher than the existing membership base for.

The average commitment.

For our small to medium businesses was 14 months and the average commitment for our enterprise clients was 25 months.

For the USC pricing for contracts signed in the quarter also increased 4%.

We look reported average revenue per physical member ARPA of 41, ARPA using the budgets foreign exchange rates was 497, an increase of 3% quarter over quarter or near our projection of 500 by year end.

As these new higher priced contracts that raised the previous contracts, we expect our reported our pump at budget FX to continue drilling.

Moving to until we work.

Access, which includes a monthly subscription and on demand pay as you go product memberships grew 13% to 62000 in the second quarter, which represents an additional <unk> seven percentage points of occupancy.

To provide some color on where we are pushing pricing in markets, where we have over 70% occupancy we generally focus on rate and those where we are below 70% occupancy we generally focus on growing occupancy.

Revenue was 45 million up 25% from Q1 <unk>.

In our international region, where occupancy reached 80% this quarter pricing for the contract signed in the quarter was approximately 4% higher than the existing membership base.

Proving that all access ARPA and membership growth yielded annual rate of about $180 million to $119 million of revenue.

The USC pricing per contract signed in the quarter also increased 4%.

From enabling companies to experiment with new ways of working to providing cost effective solutions amidst market volatility all access has become an essential tool for business to deliver flexibility and foster collaboration.

As these new higher priced contracts that raise the previous contracts, we expect our reported ARPA and budget FX to continued drilling.

Moving to undo we work.

With a leveraged as a standalone solution.

Access, which includes a monthly subscription and on demand pay as you go product memberships grew 13% to 62000 in the second quarter, which represents an additional seven percentage points of occupancy.

As a complement to dedicated space the rapid adoption of our all access product underscores the holistic nature of our offerings.

For example, one of the leading outdoor gear and apparel retailers acquired all access passes to complement their dedicated spaces at our Kelly Springfield building in Seattle.

Revenue was $45 million up 25% from Q1 <unk>.

Improvements at all access ARPA and membership growth yielded annual rate of about $180 million to $119 million of revenue.

Despite being a remote company they wanted to provide employees with the flexibility to come into the office as needed.

However to ensure employees have enough space to collaborate at scale. The company acquired 2600, all access passes to deliver optionality to employees, while minimizing fixed costs.

Xerox and accounting software provider move to fully remote work at the start of the pandemic.

With a leveraged as a standalone solution or the or as a complement to dedicated space. The rapid adoption of our all access product underscores the holistic nature of our offerings.

However, the company has distributed workforce express interest in workspace hubs set up across different cities in order to in order for sales teams to come together post events and meet with customers. We provided 100 Xerox as employees with access to a global network of locations within one week of the contracting side.

For example, one of the leading outdoor gear and apparel retailers acquired all access passes to complement their dedicated spaces at our Kelly Springfield building in Seattle.

Despite being a remote first company they wanted to provide employees with the flexibility to come into the office as needed. However to ensure employees have enough space to collaborate at scale. The company acquired 2600, all access passes to deliver optionality to employees, while minimizing fixed costs.

With access to the proprietary utilization data from all access <unk> arm with insights to make informed decisions as the company evolved it.

Work based strategy moving forward.

And lastly, two weeks ago, we officially debuted a space management software, we work workplace in the U S and the UK we.

Xerox and accounting software provider moved to a fully remote work at the start of the pandemic.

We see we look workplace at the National extension.

Our coal business positioning the company as a true end to end solution.

The company has distributed workforce express interest in workspace hubs set up across different cities in order to in order for sales teams to come together post events and meet with customers. We provided 100 Xerox employees with access to a global network of locations within one week of the contracting side.

Going beyond providing physical space products, we look at now enable companies to enhance the way they use and manage space through this software offering.

At a time when companies associated for the best ways to bring employees back with purpose and in debt intentionality. We look workplaces designed to help navigate our new wonder work by marrying space asset and people management capabilities into one universal platform.

With access to the proprietary utilization data for all access.

With insights to make informed decisions as the company evolved it's worth based strategy moving forward.

In a market that is highly fragmented we look look places the only product that can combine all space types privately Easter one.

And lastly, two weeks ago, we officially debuted a space management software, we work workplace in the U S and the UK.

We work.

Face and rework affiliate affiliated spaces within one single experience employees can seamlessly view the office space options book des <unk> colleagues are coming in and coordinate space for their teams on the backend companies can future proof their real estate strategies <unk> utilization data and.

See we look workplace is a national extension of our core business positioning the company as a true end to end solution.

Beyond providing physical space products, we look at now enable companies to enhance the way they use and manage space through the software offering.

At a time when companies are searching for the best ways to bring employees back with purpose and in debt intentionality. We look workplaces designed to help navigate a new world of work by marrying space asset and people management capabilities into one universal platform.

Insides unemployed preferences.

Dave The company assigned 11 companies of the platform, providing them with 7400 licenses to manage its spaces and <unk> portfolio and in non we look locations.

The pipeline includes over 100 companies comprising more than 35000 licenses.

In a market that's highly fragmented we work work places the only product that can combine all space types privately Easter one we.

We would comes through the workplace management space with an established global customer base of 7000 unique medium to large and enterprise member organizations, comprising approximately 360000 memberships already in our sales channel.

We work.

And we look affiliate affiliated spaces within one single experience employees can seamlessly view the office based options book des <unk> colleagues are coming in and coordinate space for their teams on the backend companies can future proof their real estate strategies <unk> utilization data and.

Many of these organizations are already leveraging flex to call a hybrid work strategies and see the accretive value of a universal platform for matching their workforce as.

Insides unemployed preferences.

The company has signed 11 companies or the platform, providing them with 7400 licenses to manage its spaces and <unk> portfolio and in non we look locations.

We have stated before we worked workplace is a joint venture with the already a leading provider of software in the world.

For an update on our asset light go forward strategy I'd like to point out that 37% of our portfolio is held in either joint ventures or franchise agreements.

Our pipeline includes over 100 companies comprising more than 35000 licenses.

We look comes to the workplace management space with an established global customer base of 7000 unique medium to large and enterprise member organizations, comprising approximately 360000 memberships already in our sales channel.

We continue to pursue asset light opportunities focusing primarily on our non core markets such as southeast Asia.

With that I'll now hand, it over to Andre.

Thanks Sandeep.

Before I review, our financials I just want to thank sandeep for his kind words at the top of the call I.

Many of these organizations are already leveraging flex to call a hybrid work strategies and see the accretive value of a universal platform for matching their workforce.

I couldnt be more excited about the potential of the business and look forward to meeting all of you in our investor community in the coming months.

We have stated before we work workplace is a joint venture with you already a leading provider of software in the world.

Now moving onto a summary of our second quarter financials.

First total revenue was $815 million up 37% year over year, driven by increases in physical memberships and all access memberships.

For an update on our asset light go forward strategy I would like to point out that 37% of our portfolio is held in either joint ventures or franchise agreements.

FX fluctuations, primarily in the euro and pound Sterling unfavorably impacted revenue by approximately $26 million compared to our original budgeted FX rates.

Continue to pursue asset light opportunities focusing primarily on our non core markets such as southeast Asia.

With that I'll now hand, it over to Andre.

Sandeep mentioned, excluding that impact total revenue would have been $841 million and above our guidance range.

Thanks Sandeep.

Before I review, our financials I just want to thank sandeep for his kind words at the top of the call I.

I couldnt be more excited about the potential of the business and look forward to meeting all of you on our investor community in the coming months.

Total company revenue is approaching pre pandemic levels and as you can see in our supplemental presentation on our significantly lower overall cost base.

Now moving onto a summary of our second quarter financials.

Building margin in the second quarter, a measure of gross profit at the building level was $86 million up sequentially from $34 million in the first quarter and compared with a loss of $192 million last year.

First total revenue was $815 million up 37% year over year, driven by increases in physical memberships and all access memberships.

FX fluctuations, primarily in the euro and pound Sterling unfavorably impacted revenue by approximately $26 million compared to our original budgeted FX rates.

We've been able to reduce our location operating expenses through a combination of rigorous cost reduction efforts and exiting unprofitable locations, while also growing revenue.

Sandeep mentioned, excluding that impact total revenue would have been $841 million and above our guidance range.

Maintaining this operating leverage will be an important driver of our future profitability.

Total company revenue is approaching pre pandemic levels and as you can see in our supplemental presentation on our significantly lower overall cost base.

Next our adjusted EBITDA loss in the second quarter was $134 million or $78 million sequential improvement from Q1 and over $300 million better than last year due to higher revenue and careful management of our expenses, including our SG&A, which declined <unk> <unk>.

17% year over year.

The FX impact on our adjusted EBITDA compared with our budgeted FX rates was immaterial and our adjusted EBITDA was at the higher end of the guidance range.

We've been able to reduce our location operating expenses through a combination of rigorous cost reduction efforts and exiting unprofitable locations, while also growing revenue.

Our net loss was $635 million in the second quarter now it's important to note that this included approximately $391 million of noncash items. This was primarily driven by unrealized FX losses on our intercompany loans as well as a partial write off of deferred financing cost.

Maintaining this operating leverage will be an important driver of our future profitability.

Next our adjusted EBITDA loss in the second quarter was $134 million, a $78 million sequential improvement from Q1 and over $300 million better than last year due to higher revenue and careful management of our expenses, including our SG&A, which declined <unk> <unk>.

In connection with amending our LC facility in May and depreciation and amortization.

These items were below the line and noncash.

And a reconciliation of our net loss to adjusted EBITDA can be found in the earnings release.

17% year over year.

The FX impact on our adjusted EBITDA compared with our budgeted FX rates was immaterial and our adjusted EBITDA was at the higher end of the guidance range.

Now a quick word about how we think about foreign exchange as we are a global business.

As you are seeing in the quarter FX had an unfavorable impact on revenue and a negligible impact on adjusted EBITDA.

Our net loss was $635 million in the second quarter now it's important to note that this included approximately $391 million of noncash items. This was primarily driven by unrealized FX losses on intercompany loans as well as a partial write off of deferred financing cost.

However, as the business becomes increasingly profitable at the gross margin level, we will have greater non U S. Dollar earnings that will be subject to FX movements.

Beginning this quarter in an effort to highlight the impact of foreign exchange on our operating results you will see in our 10-Q to be filed we will report our results in brokered actual currency as well as constant currency.

In connection with amending our LC facility in May and depreciation and amortization.

These items were below the line and noncash.

Additionally, as we approach profitability, we're closely analyzing our non U S cash flows primarily in euros and pound sterling with an eye towards potentially hedging a portion of our projected net cash flows going into 2023.

And a reconciliation of our net loss to adjusted EBITDA can be found in the earnings release.

Now a quick word about how we think about foreign exchange as we are a global business.

As you are seeing in the quarter FX had an unfavorable impact on revenue and a negligible impact on adjusted EBITDA.

Below the EBITDA line, our FX exposure is related primarily to our intercompany loans as we fund our non U S subsidiaries in their functional currencies, which both minimizes trapped cash overseas and enables us to repatriate our cash easily as our stocks become profitable.

However, as the business becomes increasingly profitable as the gross margin level, we will have greater non U S. Dollar earnings that will be subject to FX movements.

Beginning this quarter in an effort to highlight the impact of foreign exchange on our operating results you will see in our 10-Q to be filed we will report our results in both on actual currency as well as constant currency.

While these exposures are below the line and noncash will also evaluate hedging opportunities going into next year, while preserving our flexibility.

Now moving on now to liquidity and cash flow.

Our free cash flow for the second quarter was negative $298 million.

At $114 million sequential improvement from the first quarter drill.

Driven by improved operating performance lower cash restructuring and select asset sales, partially offset by higher capex.

Below the EBITDA line, our FX exposures relate primarily to our intercompany loans as we fund our non U S subsidiaries in their functional currencies, which both minimizes trapped cash overseas and enables us to repatriate our cash easily as our stocks become profitable.

On liquidity, we ended the quarter with cash commitments and access to liquidity of nearly $1 7 billion, including $625 million of available cash $550 million of on issued senior secured notes and at least $500 million of secured debt covenant capacity.

While these exposures are below the line and noncash will also evaluate hedging opportunities going into next year, while preserving our flexibility.

<unk>.

We continue to expect our liquidity at year end 2022 on that same basis to be approximately $1 4 billion.

Now moving on now to liquidity and cash flow.

Our free cash flow for the second quarter was negative $298 million at.

And finally, we are affirming our annual revenue guidance of three 4% to $33 5 billion.

A $114 million sequential improvement from the first quarter driven.

Driven by improved operating performance lower cash restructuring and select asset sales, partially offset by higher capex.

And our adjusted EBITDA guidance of negative $400 million to $475 million.

Both excluding the impact of FX on our budgeted FX rates as we've said previously.

On liquidity, we ended the quarter with cash commitments and access to liquidity of nearly $1 7 billion.

As we look forward, we believe we are well positioned to meet our targets given our revenue visibility and continued focus on rationalizing our cost structure.

Including $625 million of available cash $550 million of on issued senior secured notes and at least $500 million of secured debt covenant capacity.

In terms of our revenue outlook for the remainder of the year approximately 95% of our third quarter planned revenue and approximately 80% of our fourth quarter plan revenue is committed.

We continue to expect our liquidity at year end 2022 on that same basis to be approximately $1 4 billion.

With that operator, please open the lines for questions.

And finally, we are reaffirming our annual revenue guidance of three 4% to 353 5 billion.

Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again, we'll pause for just a moment to compile the Q&A roster.

And our adjusted EBITDA guidance of negative $400 million to $475 million, both excluding the impact of FX on our budgeted FX rates as we've said previously.

Our first question comes from Vikram Malhotra from Mizuho. Please go ahead. Your line is open.

As we look forward, we believe we are well positioned to meet our targets given our revenue visibility and continued focus on rationalizing our cost structure.

Thanks, so much for taking the question.

Andre Congratulations Kevin on your fluids.

Look forward to meeting both of you.

In terms of our revenue outlook for the remainder of the year approximately 95% of our third quarter planned revenue at approximately 80% of our fourth quarter plan revenue is committed.

Just building on your comments on revenue visibility, but also make perhaps marrying that with this <unk>.

<unk> slowdown or recession, we're seeing.

Can you comment on two things one just what scenarios are you planning for assuming the economy turns further from here.

With that operator, please open the lines of questions.

In terms of a downside risk.

Are you still of the view that by year end, you can breakeven on EBITDA.

Hi, Vikram how are you.

Our first question comes from Vikram Malhotra from Mizuho. Please go ahead. Your line is open.

Let me just answer the question obviously, we've been in a turnaround mode for about two and a half years.

Thanks, so much for taking the questions and congratulations Kevin on your first call.

And we know the levers to pull on the expense side of the equation the expense out of the equation again, we know how to control operating costs.

We look forward to meeting both the view.

Just building on your comments on revenue visibility.

So maybe perhaps marrying that with this.

We've been working towards streamlining our SG&A.

<unk> slowdown or recession, we're seeing.

At a $750 million run rate and as <unk> said in previous calls, we see room, there as well and we're going to continue.

Can you comment on two things one just what scenarios are you planning for assuming the economy turns further from here.

That path to streamline our organization, we do see ability to trim down.

In terms of a downside risk.

And are you still of the view that by year end, you can breakeven on EBITDA.

Day, one capital as you saw in the first half we spent $28 million budget for day, one capex with $100 million. So we can be mindful of Dave on Capex. It can be mindful of a day to capex and the last lever.

Hi, Vikram how are you.

Let me just answer the question obviously, we've been in a turnaround mode for about two and a half years.

And we know the levers to pull on the expense side of the equation the expense side of the equation again.

As we said on the previous call.

$350 million to $400 million.

To control operating costs.

Our rent and tenancy have guarantees of less than 12 months and it gives us an opportunity to be able to.

We've been working towards streamlining our SG&A, we're already at a $750 million run rate and as <unk> said in previous calls, we see room, there as well and we're going to continue.

Get some assistance.

In your introductions Shouldnt should we need it. So they are all levers that we can pull and again it does it.

On that path to streamline our organization, we do see the ability to trend down.

The same four levers we've pulled in the last two and a half years and we've demonstrated that over the last two and half years, we've got $2 1 billion of cost so.

Day, one capital as you saw in the first half we spent $28 million budget for day, one capex was a $100 million. So we can be mindful of day, one capex. It can be mindful of a day to capex and the last lever.

So on the expense side, we will continue to.

To be mindful.

In the light of.

Well see what a recession on the revenue side again.

As he said on the previous call about $350 million to $400 million of rent and tenancy have guarantees of less than 12 months and it gives us an opportunity to be able to.

Basically as Andre said, we have 95% of our revenue committed.

Committed for Q3 and 80% for Q4.

Very mindful of occupancy.

So we will be well.

Get some assistance.

Very focused on maintaining our occupancy.

Reintroductions shouldn't should we need it so they are all levers that we can pull again, if they're the same four levers we pull over the last two and a half years and we've demonstrated that over the last two and half years, we've got $2 1 billion of cost so.

In our revenue numbers, but what is what is.

Importantly, as you know is that the the terms being signed today for the SMB business is 14 months and the enterprise business is 25 months, which is a far cry from where this business was pre pandemic and as I'll remind you in 2017.

So on the expense side, we will continue to.

To be mindful.

90% of our business with month to month, so we have transformed ourselves.

In the light of it.

We'll see what the recession on the revenue side again.

To a business that's looking to in the Parkman business, which had lease terms are longer than 12 months, which minimizes that risk.

Basically as Andre said, we have 95% of our revenue committed for Q3 and 80% for Q4.

Of churn.

We're very mindful of occupancy.

In the fourth quarter and we are aware of the risks that are ahead of us and very mindful of it.

And so we would be.

It will be very focused on maintaining our occupancy and our revenue numbers.

Okay, great maybe.

Maybe just next one so.

<unk>.

Can you dig into some of the market.

Important as you know is that the the terms being signed to date for the SMB business is 14 months and the enterprise business is 25 months, which is a far cry from where this business was pre pandemic and as I'll remind you in 2017.

Both in terms of the occupancy swing.

As well as pricing power relative between Europe , and the U S. Europe , you, obviously higher occupancy, but Miami for example.

The committed occupancy lower than typical and there were some big swings in other markets. So maybe just give us more color, what's going on by market and relative pricing power.

90% of our business with month to month, so we have transformed our sales.

To a business that's looking to in the Parkman business, which is lease terms are longer than 12 months, which minimizes that risk.

I think I said in my comments, both the Europe has now reached 80%.

Pricing is above pre pandemic levels.

Of churn.

It is 4% higher than the previous quarter. So pricing power continues but we had also focused at 80% and drive occupancy there to.

In the fourth quarter and we are aware of the risks that are ahead of us and very mindful of it.

Okay, great maybe.

280, 590%.

Maybe just next one so.

And so.

Can you dig into some of the market.

We're mindful of the space you have.

Both in terms of the occupancy swings.

In the European markets are prime space is going to obviously go up.

As well as pricing power relative between say Europe and.

But now we'd also left which will be called.

The U S. Europe , you, obviously higher occupancy, but Miami for example.

Spaces that are not prime, but we do see where the market's at above 80% you have pricing power and it's been very healthy in the European markets.

Committed occupancy is lower than typical and there were some big swings in other markets. So maybe you could give us more color, what's going on by market and relative pricing power.

And you look at the U S.

You had said in my comments you know in both the Europe has now reached 80% and unit pricing is above pre pandemic levels and it is 4% higher than the previous quarter. So pricing power continues but we had also focused now at 80% and drive occupancy there.

Even though the U S is just approaching 70% occupancy we still got some pricing power here.

And so end up 4%, even last quarter, but again in the U S. Depending on which market you're in we are cognizant of occupancy versus pricing power.

280, 590%.

Now if you look at the market as Miami as you mentioned, we are doing it.

And so in.

Mindful of the space we have.

You may have seen that the committed occupancy at 94% versus 97%, but what we are doing is churning out.

In the European markets are Brian space is going to obviously go up.

But now it also left which will be called.

Spaces that are not prime, but we do see when rockets at above 80% you have pricing power and it's been very healthy in the European markets.

Pandemic level.

Rich to get higher members paying higher rates. So it's naturally youll see that across the world we're doing that in Israel.

Occupancy in Israel was in the mid Ninety's by 93% revenues have gone up and as John because obviously you are taking out the pre pandemic level members and putting in new members to pay market rents. So when you kind of about 90% occupancy you could see variability because obviously you had driving pricing and very cognizant of balancing.

And you look at the U S.

Even though the U S is just approaching 70% occupancy we still got some pricing power here.

Sure.

So and up 4%, even last quarter, but again in the U S. Depending on which market you're in we are cognizant of occupancy versus pricing power.

Now if you look at the market as Miami as you mentioned, we are doing it.

<unk> revenue and pricing and occupancy.

And if you look at some of the other markets I think San Francisco, we did quite well.

You may have seen that the committed occupancy is 94% versus 97%, but what we are doing is churning out.

And the only of the large market that I see any variability is Boston.

<unk> level.

And really that's really a function off.

Rich to get higher than lifting higher rates. So it's naturally youll see that across the world we're doing that in Israel.

Actually the way, we calculate occupancy is it by now.

When a member is within 60 days of their churn rate.

Occupancy in Israel was in the mid Ninety's by 93% revenues have gone up.

And there is a renewal we take the churn as if it occurred so it actually at the end of the quarter. The person is actually sitting in the space, but we are aware of and believing in that one case, which caused that variability it's too slow as bye bye bye.

Because obviously you are taking out the pre pandemic level members and putting in new members to pay market rents. So when you kind of about 90% occupancy you could see variability, because obviously youre driving pricing and very cognizant of balancing revenue and pricing and occupancy.

That's with a.

With the <unk>.

Could be.

The enterprise client and coincidentally those are the same two floors that are being recaptured at no cost to us by the landlord. So in reality in the numerator is not in the numerator of the spaces in the denominator next quarter. It will be off the new marine and off the denominator will be no there'll be no change.

And if you look at some of the other markets in the San Francisco, we did quite well.

And the only other <unk>.

<unk> market that I see any variability is Boston.

Really that's really a function off.

Actually the way, we calculate occupancy is at right now.

When a member is within 60 days of their churn date.

So what we see we see momentum as you can see quite strong when you look at the leasing activity I might even add that July .

And there is a renewal we take the churn as if it occurred so it actually at the end of the quarter. The person is actually sitting in the space, but we are aware that they are leaving in that one case, which caused that variability it still flows bye bye bye.

Again, we just we just completed a few days ago.

Leasing activity was very very strong.

It's been at the same level of strength as we see in the first month of the quarter.

With.

With the.

Okay.

Enterprise client and coincidentally those are the same two floors that are being recaptured at no cost to us.

Now and.

And the pipeline, we see to be quite strong as I mentioned in the past fast to achieve our targets we need a pipeline of about one four to one five times the required occupancy and we're heading into August we have that pipeline.

By the landlord so in reality, it's in the numerator is not in the numerator.

And the denominator and next quarter it will be off the numerator denominator shouldn't be no there'll be no change so.

Okay, Great and then just last one.

Given obviously, where the stock is today and.

So we see we see momentum as you can see.

Where were you on the cash position you've maintained your valued for for adjusted EBITDA.

<unk> strong when you look at the leasing activity I might even add that July .

Is it fair to say with the cash position, assuming things are not going to fall off a cliff you do not need to raise additional capital this year and maybe just highlight it.

Again, we just we just completed a few days ago.

Leasing activity was very very strong.

At the same level of strength as we see in the first month of the quarter.

If you do then what thoughts because that you're contemplating.

Now.

Yes, I think youre right, we don't need to raise additional capital in that existing sources of liquidity that we have should be should be more than sufficient for.

For the next year. So if you'll recall on my prepared remarks, I said that liquidity, which is $1 7 billion. Today is expected to be one 4 billion by the end of the year that implies about a $300 million use of cash in the second half of the year you see here, we've got over $600 million of cash sitting on the balance.

Okay, Great and then just last one.

Given obviously, where the stock is today and.

And where you are in the cash position you have maintained your valued for for adjusted EBITDA.

Is it fair to say with the cash position, assuming things are not going to fall off a cliff you do not need to raise additional capital this year and maybe just highlight.

So that would imply around $300 million of sitting on the balance sheet at the end of the year. So just funding the second half operations just purely truly an upfront cash payment and then looking forward. We got into next year, hopefully, we again will be EBITDA positive by that time now the next the next milestone.

If you do then what thoughts because are you contemplating.

Yes, I think youre right, we don't need to raise additional capital in that existing sources of liquidity that we have should be it should be more than sufficient for.

For us will be to get to cash flow positive, which we're hoping will be sometime in the second half.

For the next year. So if you'll recall on my prepared remarks, I said that liquidity, which is $1 7 billion today is expected to be $1 4 billion by the end of the year that implies about $300 million use of cash in the second half of the year you see here, we've got over $600 million of cash sitting on the balance.

Next year, obviously, we'll refine that in our in our year end year end guidance.

Believe again between between the cash on hand between the Undrawn 550 line, we haven't seen them secured line with Softbank as well as we put the $500 million of available capacity under our senior capacity under our bond indenture now granted we would we would actually have to go out and issue that but we think.

So that would imply around $300 million of sitting on the balance sheet at the end of the year. So just funding the second half operations just purely truly on from cash on hand, and then looking forward. We got into next year, hopefully we again will.

Between those three sources is more than sufficient to carry us for the next year.

I'll just add I'll, just reemphasize again you'd have to take into account that 95% of the revenue is committed for Q3 and 80% for Q4. So even if you do some back of the envelope math okay.

Be EBITDA positive by that time now the next the next milestone for us will be to get to cash flow positive, which we're hoping will be sometime in the second half of next year, obviously, we'll refine that in our in our year end year end guidance.

And for whatever reason the World falls apart.

Talking about $50 million to $100 million.

Delta in revenue that has already said that we actually have $100 million of cash by year end and and so even if it's a 50 to 100 largest did end the year with $200 million of cash at year end, plus the $550 million of Softbank money. So you've got 750 million before we'd even.

Believe again between between the cash on hand between the Undrawn 550 line, we haven't senior secured line with Softbank as well as we put the $500 million of available capacity under our senior capacity under our bond indenture now granted we would we would actually have to go out and issue that but we think.

You have to think about going to the market. So there is enough liquidity to carry us through.

Between those three sources is more than sufficient to carry us forward for the next year.

All the way to the end of 2023 quite honestly.

I'll just add I'll, just reemphasize again you'd have to take into account that 95% of the revenue is committed for Q3 and 80% for Q4, so even if we do some back of the envelope math okay.

Great. Thank you so much.

Our next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead. Your line is open.

And for whatever reason the World falls apart.

Good morning.

Great look forward to meeting and Kevin can't believe that you want to come back to the public limelight. So welcome back.

Talking about $50 million to $100 million.

Delta in revenue that has already said that we actually $100 million of cash by year end and and so even if it's a 50 to 100 largest did end the year with $200 million of cash at year end, plus the $550 million of.

Hi, Alex.

So just continuing on Vikram.

Your line of questioning.

Can we just go because it's a question that a lot of folks.

Ask about your capital needs I, just wanted to make sure that we are.

Of Softbank money, so you've got $750 million before we even have to think about going to the market. So there is enough liquidity to carry us through all the way to the end of 2023 quite honestly.

Everyone's on the same page and that the guidance Hasnt changed I think before you said previously you had said you guys expect to be adjusted EBITDA positive by the end of this year beginning of next and by Middle of next year, you would be cash flow positive. So I just wanted to make sure is that still correct or aren't.

Great. Thank you so much.

Our next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead. Your line is open.

Good morning.

Ray in your comments.

Andre look forward to meeting and can't believe that you want to come back to the public limelight. So welcome.

Those metrics are guideposts and pushed back none other guideposts have been pushed back I think to just said.

Alright, you Alex.

Did say in my last call at the end of Q2 or beginning of Q3, we would be cash flow positive I know was asked the question as I said the same exact thing he said second half, but that's the same exact thing none of the guide was a change to that.

So just continuing on Vikram.

Your line of questioning.

Can we just go because it's a question that a lot of folks.

Ask about your capital needs I, just wanted to make sure that we are.

Okay, and then as far as.

Yes.

Everyone's on the same page and that the guidance Hasnt changed I think before you said previously you had said you guys expect to be adjusted EBITDA positive by the end of this year I guess beginning of next and by Middle of next year, you would be cash flow positive. So I just wanted to make sure is that still correct or aren't.

You did tap additional capital I mean, let's say the 550 that you drew from Softbank, that's additional interest expense, which would then theoretically delay the cash flow positive right or has your view of that.

The amount of interest relative to the funding to the quote unquote funding gap that you would need that money for would not be material enough to really push back materially the cash flow positive.

Ray in your comments.

Those metrics are guideposts and pushed back none other guideposts have been pushed back I think they just said.

Yes, I think its the latter I think we've assumed that were we to draw on that line. We would have additional interest expense in 2023, and that's factored into when we believe will be will be cash flow positive and if you just do the math right I mean again the adult manhattanites.

Did say in my last call at the end of Q2 or beginning of Q3, we would be cash flow positive I know was asked the question that you just said the same exact thing he said second half, but that's the same exact thing none of the guidepost that changed.

Okay, and then as far as.

<unk>, which I'm not going to do with HFC, you chip that youre talking about 3500 $40 million of interest for the year. So it's not material.

Yes.

Okay then next.

I think you said through asset sales, but can you just walk through the increase in cash balance, especially as you said there was some capex that you did in the quarter. So could you just walk through the increase in cash balance on hand second quarter versus what you.

The amount of interest relative to the funding to the quote unquote funding gap that you would need that money for would not be material enough to really push back materially the cash flow positive.

Yes, I think its the latter I think we've assumed that were we to draw on that line. We would have additional interest expense in 2023, and that's factored into when we believe we'll be we'll be cash flow positive and if you just do the math right I mean again the adult manhattanites.

I think grew about $100 million from what it was first quarter.

Yes, I think I think the part you might not be seeing as we actually drew on a $3 50 junior LLC, which actually increased the cash balance. So if you were looking at just pure pure cash balance remember that we have an additional source of liquidity in may from drawing on the ALC I think I mentioned in my prepared remarks that the that the cash flow was still negative, albeit a big improvement.

<unk>, which I'm not going to do but that's just a huge hit that youre talking about 3500 $40 million of interest for the year. So it's not material.

Sequentially from Q1 to Q2, the additional draw was a big source of just overall cash. So if you just if you just look at the free cash flow improvement that was I think I mentioned from from our operating performance and then we did have as we do again, we can't we can't predict the timing of these but we did have some asset sales.

Okay then next.

In the second quarter.

I think grew about $100 million from what it was first quarter.

And also I believe a buyout of a lease which actually improved our cash balance and is also is also factored into into the overall cash guidance that we're giving for the year. So the.

Yes, I think I think the part you might not be seeing as we actually drew on a $3 50 junior LLC, which actually increase the cash balance. So if youre looking at just pure pure cash balance remember that we have an additional source of liquidity in may from drawing on the ALC I think I mentioned in my prepared remarks that the that the cash flow was still negative, albeit a big improvement.

The 100 minute I can break it down pretty easily for you.

One is obviously the.

The Capex for the day, one capex is down substantially as I said budgeted $100 million spent $28 million.

Two is we had an interest in I think it's you get interested in Hudson Bay, two a recap.

Entity.

We saw the interest in Hudson Bay.

Cash of about close to over $50 million. So that was a increase in our cash balance of $50 million.

In the second quarter.

And also I believe the buyout of a lease which actually improved our cash balance and is also is also factored into into the overall cash guidance that we're giving for the year. So.

And the last part is that.

We had an asset.

The 100 minute I can break it down pretty easily for you.

In Miami Brickell.

We had done a sublease and the lease with two institutional investors.

One is obviously the.

Capex for the day, one capex is down substantially as I said budgeted 100 million spent $28 million.

And we.

We were able to monetize that.

So our real estate was monetized.

Two is we had an interest in I think it's you get interested in Hudson Bay through a recap.

Sure.

And that provided us additional liquidity and I think I mentioned on the last call that there are couple of other levers. So we have an asset in the UK called Devon Shire square.

Entity.

We saw the interest in Hudson Bay.

Cash of about close to over $50 million. So that was a increase in our cash balance of $50 million.

Where.

We owned 10% of the asset and we have a firm contract of sale of that asset to an institutional buyer.

And the last part is that.

That should again provide liquidity.

We.

At an asset.

45 ish million.

In Miami Brickell.

And hopefully that transaction closes in Q3.

We had done a sublease in a lease with two institutional investors.

Okay, and just final Andre if you guys have plenty of cash on hand, why did you draw a line of credit in the quarter.

And we.

We were able to monetize that.

So our real estate was monetized.

I think there was an opportunity I believe as there had been done previously to access.

And that provided us additional liquidity and I think I mentioned in the last call that there are couple of other levers. So we have an asset in the UK called Devon Shire square.

Liquidity from the from the <unk> trial, So I think that was done done very opportunistically.

To draw on liquidity, knowing that we're going to need liquidity in the future. So I think it was a it was opportunistic it was done that I think at a very favorable rate and gave us liquidity it wasn't necessarily a need for liquidity, but there was an opportunity to do that and we took advantage of it.

Where.

We own 10% of the asset and we have a firm contract of sale of that asset to an institutional buyer.

That should again provide liquidity.

45 ish million.

Okay. Thank you very much.

If I can add to that Alex the way the deal is structured as you know that $350 million LC tranche.

And hopefully that transaction closes in Q3.

Okay, and just final Andre if you guys have plenty of cash on hand, why did you draw a line of credit in the quarter.

This would be juice for the period of time, so since I was going to be the interest I might as well have the cash on hand, yes.

I think there was an opportunity I believe as there had been done previously to access.

Our next question comes from Tayo Okusanya from Credit Suisse. Please go ahead. Your line is open.

Liquidity from the from the <unk> trial, So I think that was done done very opportunistically.

Yes.

To draw on liquidity and knowing that we're going to need liquidity in the future. So I think it was a it was opportunistic it was done that I think at a very favorable rate and gave us liquidity it wasn't necessarily a need for liquidity, but there was an opportunity to do that and we took advantage of it.

Good morning.

So quick question around the.

Kind of net.

Debt sales.

<unk> got a little bit down from you.

Your.

Kind of average debt sales in the past few quarters and also kind of curious about what's happening with the with the mix as it seems like on the enterprise side is kind of less contribution from the enterprise side.

Okay. Thank you very much.

If I can add to that Alex the way the deal is structured as you know that $350 million LC tranche of the <unk>.

This would be juice for the period of time, so since I was going to be the interest I might as well have the cash on hand, yes.

So let me answer the second question first.

Our next question comes from Tayo Okusanya from Credit Suisse. Please go ahead. Your line is open.

So if you actually look at what's happening obviously, the enterprise is now 45% in SMB is higher.

Yes.

There's not really a function of enterprise desk going down it's a function of enterprise.

Good morning.

So quick question around the.

Kind of net.

<unk> desk going up as a matter of fact, if you look at it.

<unk>.

<unk> sales.

<unk> got a little bit down from you.

Quarter over quarter Enterprise desk actually went up by 6000 members if I look at it year over year. It went up almost 25% by about 40000 deaths. So so so effectively.

Your.

The ratio has gone up because the amount of SMB clients has increased not because enterprises has gone down.

So let me answer the second question first.

And the last point I will sort of.

So if you actually look at what's happening obviously, the enterprise is about 45% in SMB is higher.

And just if you actually look at it and if you look at SMB, the F&B business quarter or year over year went up almost one.

There's not really a function of enterprise desk going down it's a function of enterprise.

100000 deaths of US is like I said enterprise went up about 40000 deaths.

<unk> desk going up as a matter of fact, if you look at it.

And the second point I'll make is if you look at our SKU mix, which is the mix of ratio of the amount of desk in each category and the enterprise side SKU mix, we're at 80% occupancy and on the SMB side in the average occupancy is about 65%.

Quarter over quarter Enterprise desk actually went up by 6000 members if I look at it year over year. It went up almost 25% by about 40000 deaths. So so so effectively.

The ratio has gone up because the amount of SMB clients has increased not because enterprises has gone down.

So theres more headroom to lease.

<unk> clients and so you will see that elevated SMB business for the next quarter or two so that's what's driving it but both are actually gone up substantially one by about 40000 year over year and the other one about 100000 year over year.

And the last point I would sort of.

If you actually look at it and if you look at SMB, the SMB business quarter or year over year went up almost one.

To answer your question.

100000 deaths of US is like I said enterprise went up about 40000 deaths.

Between.

The desk sales.

On a consolidated basis.

And the second point I'll make is if you look at our SKU mix, which is the mix of ratio of the amount of desk in each category and the enterprise side SKU makes it at 80% occupancy and on the SMB side.

We're pretty flat and we did 166000 best in Q love It at 160000 deaths.

In Q2, if I look at a system wide with a 211000.

In Q1 in 205000 in Q2, so I look at that to be pretty flat.

The average occupancy is about 65%, so theres more headroom to lease.

Now I will talk more about the new deck sales.

Overall.

Because the renewal rates are highest retention rate went up to 80% right. So that's a function of function of increasing renewal rates, which we get about this total occupancy rate.

And to answer your question.

Got you. Okay. That's helpful. And then again congrats on getting the kind of workplace launched.

Between.

The desk sales.

On a consolidated basis, it's pretty.

<unk> got some initial interest is pretty promising there could you just walk us through again, how you expect.

It was pretty flat and we did 166000 beds in Q1 of it at 160000 deaths in Q2, and if I look at a system wide with a 211000.

That product ultimately to contribute to your bottom line over the next.

Thats to be five years like how do you kind of think about that business growing going forward.

In Q1 in 205000 in Q2, so I look at that to be pretty flat.

Look.

As a team to do things right we have taken.

Now I will talk more about the new index sales.

Overall.

Talk about both of those are the high margin businesses for a second all access as we said is about $180 million to $190 million.

Yeah, because the renewal rates are highest retention rate went up to 80% right. So thats a function of function of increasing renewal rates, which we can about this total occupancy rate.

Range with about 62000 members and as I said to you previously we set a cap out and between $75 to 80000 members because of capacities I've challenged the team to figure out ways to increase capacity. So we can take that 200000 or so members and weakening.

Got you. Okay. That's helpful. And then again congrats on getting the kind of workplace launched.

<unk> got some initial interest is pretty promising there could you just walk us through again, how you expect.

That product ultimately to contribute to your bottom line over the next.

<unk> revenue on all access to over $300 million.

So we're very bullish on that product.

Thats too to be five years, how do you kind of think about that business growing going forward.

We just launched workplace.

Look I've challenged the team to do things right we've taken.

Again in partnership with you already.

And.

We see very promising.

Talk about both the Blizzard the high margin businesses for a second all access as we've said is about $180 million to $190 million.

Early in the game to start to project.

The revenue of that business will be but what we can say is that the tam of that business just in the United States is about $3 5 billion.

Range with about 62000 members and as I said to you previously.

Sort of capped out and between 75% 80000 members because of capacity. So I've challenged the team to figure out ways to increase capacity. So we can take that 200000 or so members and we can increase revenue on all access to over $300 million.

And so.

Depending on what percentage of that business when can capture.

It could be a meaningful impact.

Two two.

Our bottom line.

So again I don't want to make a projection, but I can I can say U S. Tam is <unk> billion dollars and I think global dam approaches X billion.

So we're very bullish on that product.

We just launched workplace.

So it's a very fragmented industry.

Again in partnership with you already.

Is a tremendous need for it which is why having launched it only two weeks ago.

And.

We see very promising.

Early in the game to start to project.

In discussions with over 100 companies.

The revenue of that business will be but what we can say is at the time of that business just in the United States is about $3 5 billion.

For license fees of over 30000 licensees so.

We see we see that can be a meaningful impact to our bottom line by 2024.

So.

Again, I don't want to project it numbers at this time, but in a quarter or two I'll have a better handle two.

Depending on what percentage of that business one can capture.

It could be a meaningful impact.

And be able to project.

Two to our bottom line. So again I don't want to make a projection, but I can I can say U S. <unk> billion, having global dam approaches 6 billion. So it's a very fragmented industry.

Okay. That's helpful.

Then.

All access side can you just give us a sense of what the what the ARPA.

Was there in.

In that business this quarter.

We have that number I think it's $235.

Is a tremendous need for it which is why having launched it only two weeks ago.

I'm pretty sure.

If you give me a second.

We are in discussions with over 100 companies.

Yep Harpoon was 235.

Or license fees of over 30000 licensees. So we see we see that can be a meaningful impact to our bottom line by 2024.

Okay, and then lastly from me and again I understand the impact of FX kind of on the numbers this quarter.

Just curious again.

<unk>.

Again, I don't want to project it numbers at this time, but in a quarter or two.

Apart from our hedging.

And the other thing that one can do just to kind of offset.

I have a better handle to be able to project.

FX like again is it possible to kind of reprice.

Okay. That's helpful and then on the <unk>.

All access side can you just give us a sense of what the what the ARPA.

No in Europe .

To kind of offset FX I'm, just kind of any other things one can do operationally to kind of minimize FX impact.

Was there.

In that business this quarter.

We have that number I think it's 200.

Again again in our business I would sort of sit back and say this is GAAP accounting Reits the GAAP accounting essentially accounts for revenue throughout the world bring your money back into America.

$35.

I'm pretty sure.

If you give me a second.

Tell you yet ARPA was 235.

Okay, and then lastly from me and again I understand the impact.

It really doesn't have a good cash flow.

So.

Kind of.

The better utilization of that capital as we get to actually get to cash flow positive.

On the numbers this quarter.

Kind of curious again.

Apart from our hedging.

Any other things that one can do just to kind of offset.

Of course, our European business is incredibly strong and we think growth coming from the international business going forward versus the U S business, So you're better off investing capital in country to minimize the effect of FX.

FX like again is it possible to kind of reprice.

In Europe .

To kind of offset FX I'm, just kind of any other things one can do operationally to kind of minimize FX impact.

On the company.

Yes, I was going to say one one thought would be can I tried to get more of my expenses in local currency, where I have an offset but we already have that's already in a position where we've got revenue and expenses.

Again in our business I would sort of sit back and say this is GAAP accounting Reits the GAAP accounting essentially accounts for revenue throughout the world bring your money back into America.

So we're doing all we can already there.

It really doesn't have a good cash flow.

Gotcha Okay.

Yes.

So.

Thank you.

Better utilization of that capital as we get to actually get to cash flow positive.

Our next question comes from Karen Martin <unk> from Jefferies. Please go ahead. Your line is open good morning in terms of the average revenue per desk, you guys had been targeting call. It 504 year and ex FX Youre at 497, I mean do you still feel that you can get to that 500 number.

And when you look at that 95% committed for third quarter it'd be for fourth quarter are you at those levels.

On the company.

Yes I was.

Say it one one thought would be can I tried to get more of my expenses in local currency were have an offset but we already have that so we're already in a position where we've got revenue and expenses and so we're doing all we can already there.

I was just sort of sit back and say, we had 497 thats awfully close in <unk>.

Awfully close.

But I do think we can we can get to the 500, we do know where Q3 numbers lie so it will be closer.

Gotcha.

Thank you.

Okay, and when you look at that.

Our next question comes from Karen Martin <unk> from Jefferies. Please go ahead. Your line is open good morning.

Driving that rate for in markets, where you have occupancy above 70%. When you look at the U S where what percentage do you feel of your markets are above that 70%, where you can drive rate.

In terms of the average revenue per desk, you guys had been targeting call. It 504 year and ex FX Youre at 497, I mean do you still feel that you can get to that 500 number and when you look at that 95% committed for third quarter it'd be for fourth quarter are you at those levels.

And how many of them are still where youre trying to drive occupancy.

Again, it's.

The question, we always say relative to generalize location sites are the obvious ones. Since you can appreciate.

I was just sort of sit back and say, we had 497 thats awfully close in <unk>.

Hi, Durham Nashville.

Austin Palo Alto Miami does all of the obvious ones, where you were driving rates because occupancies I went into the <unk>.

Fully closed.

Yes.

But I do think we can we can get there.

500, we do know where Q3 numbers lie so it will be closer.

But again, it's going to be selective like in New York.

Okay, and when you look at that.

You are driving rates at set the better assets the a quality assets.

Driving that rate for markets, where you have occupancy above 70%. When you look at the U S where what percentage do you feel of your markets are above that 70%, where you could drive rate.

And so the better way to look at this data is for <unk>.

Just a slice and dice it based upon quality of building, which we're working on.

How many of them are still where youre trying to drive occupancy.

So it's a little bit of a tale of two cities right. So the the b assets.

Again.

Our leasing up quite quickly with a more price driven.

The question, we always say relative to generalize location sites are the obvious ones. Since you can appreciate.

Assets have pricing power, if I look at San Francisco.

Durham Nashville.

Salesforce tower, I think is now 100% occupied or 96% occupied an awfully close to a 100% occupied.

Austin, Palo Alto, Miami, because all of the obvious ones.

Driving rates because occupancy that went into the <unk>, but.

And pricing there is over $1000 in ARPA, Palo Alto is 98% occupied ARPA and Palo Alto is 1400 authors.

But again, it's it's you got to be selective like in New York.

You are driving greater at set the better assets the a quality assets.

So so.

And so the better way to look at this data is for us to slice and dice. It based upon quality of building, which we're working on.

Like I said, it's a <unk> can you just slice and dice it a bit so we can talk about quality of asset to our firm so even in New York where buildings.

So it's a little bit of a tale of two cities right. So the b assets.

<unk> thousand 80% occupied.

SC 20, 30% increases.

Our leasing up quite quickly, but they are more price driven.

In ARPA.

The assets have pricing power, if I look at San Francisco.

If I look at 520 Broadway.

<unk> thousand 30% increased 50, 711th Street.

Salesforce tower I think is now a 100% occupied or 96% occupied are awfully close to a 100% occupied.

Over 30% increase so it all depends on occupancy by building and location. So it's no.

It's not a general answer and we can provide.

And pricing there is over $1000 in ARPA.

But I will say it also depends on location and quality of building.

The Alto is 98% occupied RPM in Palo Alto is 1400 authors.

Okay and then when you look at some of the recent headlines.

So so.

<unk> laying off people.

Like I said, it's a <unk> can you just slice and dice it a bit so we can talk about quality of asset to ARPA. So even in New York where buildings.

And you look at your customer base are you seeing any of that translate realizing it's early stages, but seeing any of that translate into your occupancy or is it just too soon to see any of that.

78% occupied.

We see 2030% increases.

I think it's early.

In <unk> if.

Two two to see that.

If I look at 520 Broadway.

Again, I would sort of sit back and say, it's a tale of two cities.

2030% increase 50, 711th Street.

Over 30% increase so it all depends on occupancy by building and location. So it's no. It's.

As I mentioned I think.

And then the Q1 call if I Didnt mentioned, the Q1 call I definitely mentioned some investor calls I've had.

It's not a general answer that we can provide.

I said.

The us the smaller SMB.

But I will say it also depends on location and quality of building.

Even the medium businesses.

Okay and then when you look at some of the recent headlines the fans.

We're actually doubling down on space with US are examples I gave on my earnings call that consolidating moving into May.

<unk> laying off people.

And you look at your customer base are you seeing any of that translate realizing it's early stages, but seeing any of that translate into your occupancy or is it just too soon to see any of that.

Mainly do we look locations optimizing their real estate and as a matter of fact on a per head basis, we are less expensive today because of inflation issues that that people have and building out new spaces. So we're seeing at least when it comes to the SMB and the and part of the MLP.

I think it's early.

Two two to see that.

Again, I would sort of sit back and say, it's a tale of two cities.

As I mentioned I think.

<unk>.

The demand has continued to accelerate.

And then the Q1 call if I Didnt mentioned, the Q1 call I definitely mentioned some investor calls I've had.

It's the large enterprise clients.

We're evaluating their space needs.

I said.

The us the smaller SMB.

Again, I think it's early to tell.

Where they where they pan out but.

Even the medium businesses.

But we're seeing a little bit of encouraging signs.

We're actually doubling down on space with us as examples I gave on my earnings call that consolidating moving into May.

Flexibility is sort of more of the name of the game.

Okay, and just lastly, when we look at Capex, certainly keeping it rather tight this year, but as we go into 2023 do you see a need to step up capex to continue your growth or do you feel that you have the footprint in place right now.

Do we look locations optimizing their real estate and as a matter of fact on a per head basis, we are less expensive today because of inflation issues that people have and building out new spaces. So we're seeing at least when it comes to the SMB and the and part of the MLB.

Now as we are.

Guided through 2023, we have we have about 30000 deaths.

<unk>.

Sure.

The demand has continued to accelerate.

I mean, we are bringing some online this year. So it was 50000 total for next year increment, but 30000 coming online, which we're again leases that were signed on the pre pandemic basis. So we've got capital allocated to build out those spaces and bring them online we don't see the need for additional capital going forward.

It's the large enterprise clients.

We're evaluating that space needs.

Again, I think it's early to tell.

Where they where they pan out.

But we're seeing a little bit of encouraging signs.

Flexibility is sort of more of the name of the game.

<unk>.

For 'twenty three.

And again, we can obviously put a put a halt on that spending.

Depending on where the economy heads so as a matter of fact it gives us.

We've guided to 2023, we have we have about 30000 deaths.

We've accounted for in the numbers, we spoke about the free cash flow for the second half of 2023, obviously, we put a cap on spending earlier because of issues you can obviously accelerate the free cash flow.

Sure.

I mean, we are bringing some online this year. So it was 50000 total for next year increments, but 30000 coming online, which we're again leases that were signed in the pre pandemic basis. So we've got capital allocated to build out those spaces and bring them online we don't see the need for additional capital going forward.

The business so we do have levers.

Paul We don't anticipate.

Signing any new deals at scale to have a need for capex and as we said because of the 50000 deaths come online in 2023.

Third.

For 'twenty three.

And again, we can obviously put a halt on that spending.

Guarantees are growth for 2020 four.

Depending on where the economy heads so as a matter of fact it gives us.

<unk> effectively anything we're looking at now will be close to 25.

Alright, Thank you very much appreciate it.

We've accounted for in the numbers, we spoke about the free cash flow for the second half of 2023, obviously.

Our next question comes from Vikram Malhotra from Mizuho. Please go ahead. Your line is open.

Put a cap on spending.

Thanks for taking the follow up so just going back to sort of the customer makeup if I'm not wrong I think tech is about maybe 40% of your customer base.

Earlier because of issues you can obviously accelerate.

Free cash flow.

And then the business so we do have levers.

And related to the question on Fintech can you just give us a sense of is there a watch list.

Well, we don't anticipate.

Signing any new deals at scale to have a need for capex and as we've said because of the 50000 deaths that come online in 2023.

Youre monitoring how are you.

Especially on the technology side, given the headline.

And maybe anecdotally coinbase one of your larger tenants.

Any anecdotes or.

Guarantees are growth for 2020 four.

The integration with them on what they might do with their space.

Effectively anything we're looking at now will be closed for 25.

So.

But half our revenues.

Alright, Thank you very much appreciate it.

Again, approximately half of our revenue comes from enterprise clients, which obviously you got good financials and a 25 months.

Our next question comes from Vikram Malhotra from Mizuho. Please go ahead. Your line is open.

<unk>.

Thanks for taking the follow up so just going back to sort of the customer makeup if I'm not wrong I think tech is about maybe 40% of your customer base.

But with 24 100 enterprise signs I. Appreciate we have 27000, SMB declines and not a single decline is greater than 0.1% of our revenue.

And the question on Fintech can you just gives us a sense is there a watch list.

It's very diversified.

Youre monitoring how are you.

And if you speak about <unk>, specifically and I think we said this in.

Especially on the technology side, given the headline.

Maybe anecdotally coinbase one of your larger tenants.

And I always forget what I said at an investor meeting on an investor call, but as a matter of fact in Q1 last Q2, they actually took.

Any anecdotes or.

Communication with them on what they might do with their space.

So.

But half our revenues again.

Kevin.

Collaboration hubs.

Approximately half of our revenue comes from enterprise clients, which are obviously got good financials and a 25 month term.

You've talked about servicing the needs of the client so.

As of to date.

But with 2400 enterprise clients. Appreciate we have 27000, SMB declines and not a single decline is greater than point.

They.

We have not had any discussion with them about.

Contract Ing space.

Okay. That's helpful and then just.

On the retention.

1% of our revenue so.

Churn retention looking at the quarter.

It's very diversified.

And if you speak about cutting waste, specifically and I think we said this.

You mentioned I think.

Our retention line up.

I'm getting the number but I think you said, 80%.

And I always forget what I said at an investor meeting or Investor call, but as a matter of fact in Q1 last Q2, they actually took.

Can you just give us a sense of like how how is that.

You mean other differences between enterprise versus SMB and what are you baking in for the second half in terms of retention.

Seven.

Collaboration hubs.

As we've talked about servicing the needs of the clients. So.

There is really again.

I haven't broken it out to be perfectly honest between SMB and enterprise, but 80% seems to be the blended number. So intuitively would tell me that enterprises will be a higher retention rate and SMB intuitively I cant I don't have that in front of me.

As of to date.

<unk>.

The.

We've not had any discussion with them about.

Contracting space.

Okay. That's helpful and then just.

I think we baked in 78.

On the retention.

Okay.

<unk> retention looking at the quarter.

Okay. Okay, great. Thank you.

Our last question will come from Tayo Okusanya from Credit Suisse. Please go ahead. Your line is open.

You mentioned I think retention line up.

I'm getting the number but I think you said, 80%.

Yes, actually I just wanted to go back to a question Vikram.

Can you just give us a sense of like how how is that.

What kind of scenario analysis.

I mean are the differences between enterprise versus SMB and what are you baking in for the second half in terms of retention.

A recession.

Could you guys talk a little bit about how you're kind of client.

Down on some opex and some capex and things like that but wondering if there's a way you could actually quantify.

It's really again.

I haven't broken it out to be perfectly honest between SMB and enterprise, but 80% seems to be the blended number. So intuitively you would tell me that enterprises will be a higher retention rate and SMB intuitively again, I don't have any economy.

Again, how much of that you could actually.

Take out on how quickly the kind of.

Protect liquidity.

And kind of an economic downturn.

I think we baked in 78.

I would say for the second half of the year, we had to buckle down in the $50 million to $100 million.

Okay. Okay, great. Thank you.

Our last question will come from Tayo Okusanya from Credit Suisse. Please go ahead. Your line is open.

Okay. Good.

Thank you.

Okay.

Yes, actually I just wanted to go back to a question Vikram.

We have no further questions I'd like to turn the call back over to Sandy Smith Ronny for closing remarks.

What kind of scenario analysis.

Recession.

Thank you all for joining our earnings call. This morning, our progress would not be possible. If it was not for the contributions of our employees around the world.

Can you guys talk a little bit about how you could kind of client.

Down on some opex and some capex and things like that but wondering.

Have a great day.

The way you could actually quantify.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Again, how much of that you could actually.

Take out on how quickly the kind of.

Okay.

Sure.

Protect liquidity.

And kind of an economic downturn.

Yeah.

I would say for the second half of the year, we had to buckle down in the $50 million to $100 million.

Okay.

Who.

Okay. Good thank.

Thank you.

Sure.

We have no further questions I'd like to turn the call back over to Sandeep <unk> for closing remarks.

Okay.

Thank you all for joining our earnings call. This morning, our progress would not be possible. If it was not for the contributions of our employees around the world.

Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Yes.

Yeah.

Okay.

Yeah.

Q2 2022 WeWork Inc Earnings Call

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